GE Healthcare exemplifies this
approach. The company has more
than 1,000 R&D engineers and
seven manufacturing facilities in
China. About one-half of its products sold in China were developed
in China. Its portable ultrasound
devices, for example, are easy to
operate and reliable in nonhospi-tal settings, where they are often
used by community doctors. One
of GE’s portable devices built for
China, the Vscan, has also found
a home in emergency rooms and
ambulances in mature markets.

GE Healthcare has committed

$300 million to create its Sustainable Healthcare Solutions business, which is aimed at emerging
markets. Recognizing the value of
external innovation, the company
has also agreed to fund a $50 million incubator that will invest in
promising emerging-market health
care startups, including disruptive,
low-cost technologies.

REDUCING COSTS

Pricing and costs are top issues
globally for the medtech industry,
according to BCG’s 2015 commercial excellence benchmarking
study. They are especially critical
in emerging markets.

If they have not done so already,
multinationals should expand
their manufacturing and R&D
footprints in emerging markets as
a way to reduce costs. For products that are not labor intensive,
such as stents, local manufacturing
will not be a panacea, but it could
still lower logistical costs and help
avoid tariffs.

Additionally, product simplifica-tion should be part of multinationals’ cost strategies. For price-sensitive hospitals and health care
providers, durable, no-frills products represent the best value for
their limited budgets.

Leading equipment makers, such
as GE and Siemens, have been
manufacturing a range of products
in emerging markets for decades.

Their medical equipment businesses have benefited from this decision, with COGS in China lower
than the global average.

LOCALIZING THE GO-TO-MARKET APPROACH

Multinationals need a local approach to reaching key buyers,
decision makers, and influencers. Emerging markets often have
wider geographic dispersion and
lower revenue per account, making the commercial economics
challenging. What is routine in
the West can quickly become
frustratingly complex in emerging
markets. Creating a winning go-to-market approach requires both
strategic insight and execution on
the ground.

In China, Medtronic has managedthe tradeoff between reach andspecialization by basing its salesstrategy on city size. For large met-ropolitan hospitals, each Medtron-ic business unit has its own salesteam because the customers for theproducts are different. In lower-tier cities, where that approachwould be too costly, Medtronicincentivizes sales representativesby allowing them to sell multipleproduct lines. This approach worksbecause the hospitals in such areasgenerally have basic needs andbecause the business unit teamscan provide support as required.

Of course, more focused companies would likely choose a simpler
approach. One size does not fit all.

ACQUIRING EMERGING-MARKET COMPETITORS

M&A can be an effective strategy
for multinationals. Even if they
build local facilities, multinationals still may not duplicate a local
company’s cost structure. FDA-certified factories and processes,
for example, are costly. M&A can
allow multinationals to acquire
this infrastructure less expensively
than they might be able to build it.

M&A can also speed time to market. Many medtech devices require
several years to register with the
FDA; the acquisition of a company
with those registrations in place
can bypass the wait. Finally, by
making an acquisition, multinationals can enjoy the favorable status of local companies in tendering
and requisition processes.

Several multinationals have acquired products, distribution, local
R&D, and manufacturing through
acquisitions. Philips, for example,
acquired manufacturing capabilities when it bought Meditronics
and Alpha, two Indian medical imaging companies, in 2008.

Medtronic, in 2012, acquired Kan-ghui, China’s leading orthopedic
products manufacturer, as a way to
broaden both its portfolio and its
channels.